UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark one:
[X] QUARTERLY REPORT UNDER SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2012
OR
[_] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ______ to
_______
Commission File Number 000-32695
Amaru, Inc.
(Exact name of registrant as specified in
its charter.)
Nevada
|
88-0490089
|
(State of Incorporation)
|
(IRS Employer Identification No.)
|
62 Cecil Street, #06-00 TPI Building,
Singapore 049710
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including
area code (65) 6332 9287
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [X] No [_]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act.
Large accelerated reporting filer |_|
|
Accelerated filer |_|
|
Non-accelerated filer |_|
|
Smaller company |X|
|
(Do not check if a smaller reporting
|
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [_] No [X]
Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock $0.001 par value
|
199,990,043 shares of Common Stock
|
(Class)
|
(Outstanding as of September 30, 2012)
|
AMARU, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q For Period
Ended September 30, 2012
Table of Contents
PART I: FINANCIAL INFORMATION
|
|
|
|
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
|
|
Consolidated Balance Sheets
|
F-1
|
Consolidated Statements of Operations
|
F-2
|
Consolidated Statement of Stockholders' Deficit and Comprehensive Income
|
F-3
|
Consolidated Statements of Cash Flows
|
F-4
|
Notes to Consolidated Financial Statements
|
F-5 to F-17
|
|
|
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
1
|
|
|
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
5
|
|
|
ITEM 4: CONTROLS AND PROCEDURES
|
7
|
|
|
|
|
PART II: OTHER INFORMATION
|
|
|
|
ITEM 1: LEGAL PROCEEDINGS
|
8
|
ITEM 1A: RISK FACTORS
|
8
|
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
13
|
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
|
13
|
ITEM 4: MINE SAFETY DISCLOSURES
|
13
|
ITEM 5: OTHER INFORMATION
|
13
|
ITEM 6: EXHIBITS
|
13
|
|
|
SIGNATURES
|
14
|
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial
Statements
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,230
|
|
|
$
|
219,348
|
|
Accounts receivable, net of allowance of $265,533 and $261,532 as at September 30, 2012 and December 31, 2011 respectively
|
|
|
27,360
|
|
|
|
12,885
|
|
Equity securities held for trading
|
|
|
1,163,161
|
|
|
|
584,406
|
|
Other current assets
|
|
|
190,409
|
|
|
|
166,782
|
|
Total current assets
|
|
|
1,430,160
|
|
|
|
983,421
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
6,747
|
|
|
|
39,797
|
|
Associate
|
|
|
37
|
|
|
|
37
|
|
Investments - Net
|
|
|
1,843,076
|
|
|
|
1,843,076
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
1,849,860
|
|
|
|
1,882,910
|
|
Total assets
|
|
$
|
3,280,020
|
|
|
$
|
2,866,331
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
785,204
|
|
|
$
|
816,641
|
|
Advances from related parties
|
|
|
100,465
|
|
|
|
100,465
|
|
Capital lease payable - short term
|
|
|
–
|
|
|
|
11,974
|
|
Convertible term loan
|
|
|
2,199,090
|
|
|
|
2,500,000
|
|
Total current liabilities
|
|
|
3,084,759
|
|
|
|
3,429,080
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Capital lease payable - long term
|
|
|
–
|
|
|
|
15,960
|
|
Total non-current liabilities
|
|
|
–
|
|
|
|
15,960
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,084,759
|
|
|
|
3,445,040
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock (par value $0.001) 25,000,000 shares authorized; 6,643,054 and 5,081,951 shares issued and outstanding at September 30,2012 and December 31, 2011, respectively
|
|
|
6,643
|
|
|
|
5,082
|
|
Common stock (par value $0.001) 400,000,000 shares authorized; 194,656,710 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively
|
|
|
194,657
|
|
|
|
194,657
|
|
Additional paid-in capital
|
|
|
42,797,838
|
|
|
|
42,565,234
|
|
Accumulated Deficit
|
|
|
(40,325,665
|
)
|
|
|
(40,757,707
|
)
|
Accumulated other comprehensive income
|
|
|
968,406
|
|
|
|
968,406
|
|
Total Amaru Inc.'s Stockholder's Deficit
|
|
|
3,641,879
|
|
|
|
2,975,672
|
|
Non controlling interest
|
|
|
(3,446,618
|
)
|
|
|
(3,554,381
|
)
|
Total stockholders' equity
|
|
|
195,261
|
|
|
|
(578,709
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
3,280,020
|
|
|
$
|
2,866,331
|
|
See accompanying notes to consolidated financial
statements
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For the Nine Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
$
|
6,643
|
|
|
$
|
4,342
|
|
|
$
|
3,530
|
|
|
$
|
103
|
|
Total revenue
|
|
|
6,643
|
|
|
|
4,342
|
|
|
|
3,530
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
(59,314
|
)
|
|
|
(99,005
|
)
|
|
|
(22,249
|
)
|
|
|
(26,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loss
|
|
|
(52,671
|
)
|
|
|
(94,663
|
)
|
|
|
(18,719
|
)
|
|
|
(26,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution costs
|
|
|
(39,024
|
)
|
|
|
(42,350
|
)
|
|
|
(8,298
|
)
|
|
|
(21,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(616,789
|
)
|
|
|
(815,817
|
)
|
|
|
(232,498
|
)
|
|
|
(222,882
|
)
|
Total expenses
|
|
|
(655,813
|
)
|
|
|
(858,167
|
)
|
|
|
(240,796
|
)
|
|
|
(244,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(708,484
|
)
|
|
|
(952,830
|
)
|
|
|
(259,515
|
)
|
|
|
(271,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment written off
|
|
|
–
|
|
|
|
(110,890
|
)
|
|
|
–
|
|
|
|
–
|
|
Interest expenses
|
|
|
(4,756
|
)
|
|
|
(2,003
|
)
|
|
|
–
|
|
|
|
(674
|
)
|
Interest income
|
|
|
13
|
|
|
|
70
|
|
|
|
–
|
|
|
|
20
|
|
Sundry income
|
|
|
14,536
|
|
|
|
4,789
|
|
|
|
6,442
|
|
|
|
1,612
|
|
Gain on disposal of equipment
|
|
|
66,506
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Gain on disposal of investment
|
|
|
311,890
|
|
|
|
–
|
|
|
|
311,890
|
|
|
|
–
|
|
Net change in fair value of equities held for trading
|
|
|
860,100
|
|
|
|
(189,324
|
)
|
|
|
624,245
|
|
|
|
(71,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) before income taxes
|
|
|
539,805
|
|
|
|
(1,250,188
|
)
|
|
|
683,062
|
|
|
|
(341,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (provision) benefit
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interest
|
|
$
|
539,805
|
|
|
$
|
(1,250,188
|
)
|
|
|
683,062
|
|
|
|
(341,97
|
)
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of Amaru, Inc.
|
|
|
432,042
|
|
|
|
(1,099,095
|
)
|
|
|
558,693
|
|
|
|
(303,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
107,763
|
|
|
|
(151,093
|
)
|
|
|
124,369
|
|
|
|
(38,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
attributable to Amaru, Inc. - basic
|
|
$
|
0.003
|
|
|
$
|
(0.006
|
)
|
|
|
0.003
|
|
|
|
(0.002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
attributable to Amaru, Inc. - diluted
|
|
$
|
0.002
|
|
|
|
|
|
|
|
0.002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding - basic
|
|
|
194,656,710
|
|
|
|
192,553,763
|
|
|
|
194,656,710
|
|
|
|
196,642,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding - diluted
|
|
|
263,421,740
|
|
|
|
|
|
|
|
263,421,740
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
DEFICIT AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2011 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 2012 (UNAUDITED)
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Par Value
($0.001)
|
|
|
Number of Shares
|
|
|
Par Value
($0.001)
|
|
|
Additional Paid-in
Capital
|
|
|
Subscribed
Common
Stock
|
|
|
Accumulated
Deficit
|
|
|
Currency
Translation
Reserve
|
|
|
Fair
Value
Reserve
|
|
|
Noncontrolling
Interest
|
|
|
Total
Shareholders’
Equity
|
|
Balance at December 31, 2010
|
|
|
--
|
|
|
|
--
|
|
|
|
179,666,062
|
|
|
$
|
179,666
|
|
|
$
|
41,510,530
|
|
|
$
|
--
|
|
|
$
|
(39,425,386
|
)
|
|
$
|
12,927
|
|
|
$
|
955,479
|
|
|
$
|
(3,374,813
|
)
|
|
$
|
(141,597)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issue
|
|
|
--
|
|
|
|
--
|
|
|
|
14,990,648
|
|
|
|
14,991
|
|
|
|
297,593
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
312,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference stock issue
|
|
|
5,081,951
|
|
|
|
5,082
|
|
|
|
--
|
|
|
|
--
|
|
|
|
757,111
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
762,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,332,321
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(179,568
|
)
|
|
|
(1,511,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,511,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
5,081,951
|
|
|
|
5,082
|
|
|
|
194,656,710
|
|
|
$
|
194,657
|
|
|
$
|
42,565,234
|
|
|
$
|
--
|
|
|
$
|
(40,757,707
|
)
|
|
$
|
12,927
|
|
|
$
|
955,479
|
|
|
$
|
(3,554,381
|
)
|
|
$
|
(578,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference stock issued
|
|
|
1,561,103
|
|
|
|
1,561
|
|
|
|
--
|
|
|
|
--
|
|
|
|
232,604
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
234,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
432,042
|
|
|
|
--
|
|
|
|
--
|
|
|
|
107,763
|
|
|
|
539,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(143,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2012 (unaudited)
|
|
|
6,643,054
|
|
|
|
6,643
|
|
|
|
194,656,710
|
|
|
$
|
194,657
|
|
|
$
|
42,797,838
|
|
|
$
|
--
|
|
|
$
|
(40,325,665
|
)
|
|
$
|
12,927
|
|
|
$
|
955,479
|
|
|
$
|
(3,446,618
|
)
|
|
$
|
195,261
|
|
See accompanying notes to consolidated financial
statements
AMARU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the Nine Months Ended
|
|
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
539,805
|
|
|
$
|
(1,250,188
|
)
|
Adjustments for :
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
37,148
|
|
|
|
158,641
|
|
Equipment written off
|
|
|
–
|
|
|
|
110,890
|
|
Gain on disposal of equipment
|
|
|
(66,506
|
)
|
|
|
–
|
|
Gain on disposal of investment
|
|
|
(311,890
|
)
|
|
|
–
|
|
Net change in fair value of financial assets at fair value through profit or loss-held for trading
|
|
|
(860,100
|
)
|
|
|
189,324
|
|
|
|
|
|
|
|
|
|
|
Changes in operation assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
|
(14,475
|
)
|
|
|
885
|
|
Others current assets
|
|
|
(23,627
|
)
|
|
|
20,191
|
|
Accounts payable and accrued expenses
|
|
|
(31,437
|
)
|
|
|
(30,261
|
)
|
Net cash used in operating activities
|
|
|
(731,082
|
)
|
|
|
(800,518
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Receipts from disposal of equipment
|
|
|
66,506
|
|
|
|
–
|
|
Acquisition of equipment
|
|
|
(4,098
|
)
|
|
|
(2,489
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
62,408
|
|
|
|
(2,489
|
)
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Receipts from disposal of investment
|
|
|
593,235
|
|
|
|
–
|
|
Repayment of related parties
|
|
|
–
|
|
|
|
(2,279
|
)
|
Repayments of obligations under finance leases
|
|
|
(27,934
|
)
|
|
|
(12,520
|
)
|
Repayment of convertible loan
|
|
|
(300,910
|
)
|
|
|
–
|
|
Receipts from preferred stock issued
|
|
|
234,165
|
|
|
|
513,000
|
|
Receipts from common stock issued
|
|
|
–
|
|
|
|
312,584
|
|
Net cash provided by financing activities
|
|
|
498,556
|
|
|
|
810,785
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
–
|
|
|
|
–
|
|
Cash flows from all activities
|
|
|
(170,118
|
)
|
|
|
7,778
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
219,348
|
|
|
|
221,183
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
49,230
|
|
|
$
|
228,961
|
|
See accompanying notes to consolidated financial
statements
AMARU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2012 AND 2011
1. BASIS OF PRESENTATION AND REORGANIZATION
Amaru, Inc. (the "Company") is
in the business of broadband entertainment-on-demand, streaming via computers, television sets, PDAs (Personal Digital Assistant)
and the provision of broadband services. Its business includes channel and program sponsorship (advertising and branding); online
subscriptions, channel/portal development (digital programming services); content aggregation and syndication, broadband consulting
services, broadband hosting and streaming services and E-commerce.
The Company was also in the business of
digit gaming (lottery). The Company has an 18 year license to conduct nationwide lottery in Cambodia. The Company through its subsidiary,
M2B commerce limited, signed an agreement with Allsports International Ltd., a British Virgin Islands company to operate and conduct
digit games in Cambodia and to manage the digit games activities in Cambodia. The license has been suspended, see Note 13.
The key business focus of the Company is
to establish itself as the leading provider and creator of a new generation of Entertainment-on-Demand and E-Commerce Channels
on Broadband, and 3G (Third Generation) devices.
The Company delivers both wire and wireless
solutions, streaming via computers, TV sets, PDAs and 3G hand phones.
The Company's business model in the area
of broadband entertainment includes e-services, which would provide the Company with multiple streams of revenue. Such revenues
would be derived from advertising and branding (channel and program sponsorship); on-line subscriptions; online games micro-payments;
channel/portal development (digital programming services); content aggregation and syndication; broadband consulting services;
broadband hosting and streaming services; E-commerce commissions and on-line dealerships; and pay per view services.
1.2 Recent Accounting Standards and Pronouncements
In December 2011, the FASB issued ASU No.
2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments of this ASU are
effective at the same time as the amendments in ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive
Income, so that entities will not be required to comply with the presentation requirements in ASU No. 2011-05 that ASU No. 2011-12
is deferring. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report
comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements.
Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December
15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim
and annual periods thereafter. The adoption of this guidance did not have a material impact on the Company’s financial statements.
In December 2011, the FASB issued ASU No.
2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Offsetting, otherwise known as netting,
is the presentation of assets and liabilities as a single net amount in the statement of financial position (balance sheet). Unlike
IFRS, U.S. GAAP allows companies the option to present net in their balance sheets derivatives that are subject to a legally enforceable
netting arrangement with the same party where rights of set-off are only available in the event of default or bankruptcy. To address
these differences between IFRS and U.S. GAAP, in January 2011 the FASB and the IASB (the Boards) issued an exposure draft that
proposed new criteria for netting that were narrower than the current conditions currently in U.S. GAAP. Nevertheless, in response
to feedback from their respective stakeholders, the Boards decided to retain their existing offsetting models. Instead, the Boards
have issued common disclosure requirements related to offsetting arrangements to allow investors to better compare financial statements
prepared in accordance with IFRS or U.S. GAAP. ASU 2011-11 requires an entity to disclose information about offsetting and related
arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.
An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods
within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative
periods presented. The adoption of this guidance did not have a material impact on the Company’s financial statements.
In December 2011, the FASB issued ASU No.
2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. ASU No. 2011-10
represents the consensus reached in EITF Issue No. 10-E, "Derecognition of in Substance Real Estate." The objective of
this ASU is to resolve the diversity in practice about whether the guidance in FASB ASC Subtopic 360-20, "Property, Plant,
and Equipment -- Real Estate Sales," applies to a parent that ceases to have a controlling financial interest in a subsidiary
that is in substance real estate as a result of default on the subsidiary's nonrecourse debt. ASU 2011-10 provides that when a
parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a
result of default on the subsidiary's nonrecourse debt, the reporting entity should apply the guidance in Codification Subtopic
360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy
the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the
extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial
interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary's
operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the
debt. ASU 2011-10 should be applied on a prospective basis to deconsolidation events occurring after the effective date; with prior
periods not adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate
entities. For public entities, ASU 2011-10 is effective for fiscal years, and interim periods within those years, beginning on
or after June 15, 2012. For nonpublic entities, ASU 2011-10 is effective for fiscal years ending after December 15, 2013, and interim
and annual periods thereafter. Early adoption is permitted. The adoption of this guidance did not have a material impact on the
Company’s financial statements.
In June 2011, the FASB issued ASU No. 2011-05,
Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU allows an entity the option to present the total
of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous
statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present
each component of net income along with total net income, each component of other comprehensive income along with a total for other
comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components
of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments to the Codification in
the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income
must be reclassified to net income. ASU 2011-05 should be applied retrospectively. For public entities, the amendments are effective
for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments
are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted.
The Company has adopted this guidance. The adoption had no material impact on the Company’s financial statements.
In May 2011, the FASB issued ASU No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP
and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective
efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value
and for disclosing information about fair value measurements, including a consistent meaning of the term "fair value."
The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and
disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments to the FASB Accounting Standards
Codification (Codification) in this ASU are to be applied prospectively. For public entities, the amendments are effective during
interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods
beginning after December 15, 2011. Early application by public entities is not permitted. Nonpublic entities may apply the amendments
in ASU 2011-04 early, but no earlier than for interim periods beginning after December 15, 2011. The Company has adopted this guidance.
The adoption had no material impact on the Company’s financial statements..
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
2.1 Principles of Consolidation
The consolidated financial statements include
the financial statements of Amaru, Inc. and its majority owned subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation. In addition, the Company evaluates its relationships with other entities to identify whether
they are variable interest entities as defined by ASC 810 Consolidation of Variable Interest Entities and to assess whether it
is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that
entity is included in the consolidated financial statements in accordance with ASC 860.
2.2 Presentation as a Going Concern
The accompanying condensed consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. The Company also has an accumulated deficit of $40,325,665 and
a working capital deficit of $1,654,599 at September 30, 2012.
The items discussed above raise substantial
doubts about the Company's ability to continue as a going concern. If the Company's financial resources are insufficient, the Company
may require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict
whether this additional financing will be in the form of equity, debt or another form. The Company may not be able to obtain the
necessary additional capital on a timely basis, on acceptable terms, or at all. Should financing sources fail to materialize, management
would seek alternate funding sources such as the sale of common and/or preferred stock, the issuance of debt or other means. The
Company plans to attempt to address its working capital deficiency by increasing its sales, maintaining strict expense controls
and seeking strategic alliances.
In the event that these financing sources
do not materialize, or the Company is unsuccessful in increasing its revenues and profits, the Company will be forced to further
reduce its costs, may be unable to repay its debt obligations as they become due or respond to competitive pressures, any of which
circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.
The financial statements do not include
any adjustments relating to the recoverability and reclassification of recorded asset amounts or amounts and reclassification of
liabilities that might be necessary, should the Company be unable to continue as a going concern.
2.3 Use of Estimates
The preparation of the consolidated financial
statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions relating
to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates
and assumptions include carrying amount of property and equipment, intangibles, valuation allowances of receivables and inventories.
Actual results could differ from those estimates.
Management has not made any subjective
or complex judgments the application of which would result in any material differences in reported results.
2.4 Cash and Cash Equivalents
Cash and cash equivalents are defined as
cash on hand, demand deposits and short-term, highly liquid investments readily convertible to cash and subject to insignificant
risk of changes in value.
Cash in banks and short-term deposits are
held to maturity and are carried at cost. For the purposes of the consolidated statements of cash flows, cash and cash equivalents
consist of cash on hand and deposits in banks, net of outstanding bank overdrafts.
The Company monitors its liquidity risk
and maintains a level of cash and cash equivalents deemed adequate by management to finance the Company's operations and to mitigate
the effects of fluctuations in cash flows.
2.5 Accounts Receivable
Accounts receivable, which generally have
30 to 90 day terms, are recorded at the invoiced amount less an allowance for any uncollectible amounts (if any) and do not bear
interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated
statements of cash flows. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses
in the Company's existing accounts receivable. Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote. Bad debts are written off as incurred. The Company does
not have any off-balance sheet credit exposure related to its customers.
The Company's primary exposure to credit
risk arises through its accounts receivable. The credit risk on liquid funds is limited because the counterparties are banks with
high credit ratings assigned by international credit-rating agencies.
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2012
|
|
|
September 30, 2011
|
|
SALES OUTSIDE OF THE U.S.
|
|
$
|
6,643
|
|
|
$
|
4,342
|
|
|
|
|
|
|
|
|
|
|
SERVICES PURCHASED OUTSIDE OF THE U.S.
|
|
$
|
59,314
|
|
|
$
|
99,005
|
|
2.6 Property and Equipment
Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets for financial reporting purposes.
Expenditures for major renewals and betterments that extend the useful lives are capitalized. Expenditures for normal maintenance
and repairs are expensed as incurred. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated
from the accounts and any gains or losses are reflected in the accompanying consolidated statements of operations of the respective
period. The estimated useful lives of the assets range from 3 to 5 years.
Equipment written off was nil for the nine
months ended September 30, 2012 and $110,890 for the nine months ended September 30, 2011. Gain on disposal of equipment was $66,506
and nil for the nine months ended September 30, 2012 and 2011 respectively, with net carrying value of nil as at September 30,
2012 and 2011 respectively.
2.7 Film Library
Investment in the Company's film library
includes movies, dramas, comedies and documentaries in which the Company has acquired distribution rights from a third party. For
acquired films, these capitalized costs consist of minimum guarantee payments to acquire the distribution rights. Costs of acquiring
the Company's film libraries are amortized using the individual-film-forecast method in accordance with ASC 926, "Accounting
for Producers and Distributors of Films," whereby these costs are amortized and participations and residuals costs are accrued
in the proportion that current year's revenue bears to management's estimate of ultimate revenue at the beginning of the current
year expected to be recognized from the exploitation, exhibition or sale of the films. Ultimate revenue for acquired films includes
estimates over a period not to exceed twenty years following the date of acquisition. Investments in films are stated at the lower
of amortized cost or estimated fair value.
The valuation of investment in films is
reviewed on a overall basis, when an event or change in circumstances indicates that the fair value of the film library is less
than its unamortized cost. The fair value of the film is determined using management's future revenue and cost estimates and a
discounted cash flow approach. Additional amortization is recorded in the amount by which the unamortized costs exceed the estimated
fair value of the film. Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions
in the carrying value of investment in films may be required as a consequence of changes in management's future revenue estimates.
The Company most recently completed an
impairment evaluation in the fourth quarter of fiscal year 2009. The film library was determined to be impaired during the year
ended December 31, 2009. In conducting the analysis, the Company used a discounted cash flow approach in estimating fair value
as market values could not be readily determined given the unique nature of the respective assets. Based upon the analysis the
Company determined that carrying amount of the film library exceeded its fair value by $19,164,782, as reflected Note 6.
2.8 Intangible Assets
Intangible assets consist of gaming, software
license and product development costs. Intangible assets which were purchased for a specific period are stated at cost less accumulated
amortization and impairment losses. Such intangible assets are reviewed for impairment in accordance with ASC 350, Accounting for
Goodwill and Other Intangible Assets. Such intangible assets are amortized over the period of the contract, which is 2 to 18 years.
Included in the gaming license are the
rights to a digit games license in Cambodia. The license is for a minimum period of 18 years commencing from June 1, 2005, with
an option to extend for a further 5 years or such other period as may be mutually agreed. The digit gaming license was suspended,
and the asset was impaired during the year ended December 31, 2008. See Note 13.
The Company most recently completed an
impairment evaluation in the fourth quarter of fiscal year 2009 of its remaining gaming licenses relating to it online video game
downloads. The gaming license was determined to be impaired during the year ended December 31, 2009. In conducting the analysis,
the Company used a discounted cash flow.
The Company most recently completed an
impairment evaluation in the fourth quarter of fiscal year 2009 of its remaining gaming licenses relating to it online video game
downloads. The gaming license was determined to be impaired during the year ended December 31, 2009. In conducting the analysis,
the Company used a discounted cash flow approach in estimating fair value as market values could not be readily determined given
the unique nature of the gaming licenses. For the gaming licenses identified as being impaired, the cash flows associated with
underlying assets did not support a value greater than zero due to a lack of revenue associated with the gaming license. The licenses
were fully impaired as disclosed in Note 7.
The Company capitalized the development
and building cost related to the broad-band sites and infrastructure for the streaming system. The Company projects that these
development costs will be useful for up to 5 years before additional significant development needs to be done.
2.9 Associate
An associate is an entity over which the
Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is
the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over
those policies.
The results and assets and liabilities
of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments
in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Company's share
of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess
of the group's interest in that associate (which includes any long-term interests that, in substance, form part of the Company's
net investment in the associate) are not recognised, unless the group has incurred legal or constructive obligations or made payments
on behalf of the associate.
Any excess of the cost of acquisition over
the Company's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised
at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and
is assessed for impairment as part of the investment. Any excess of the Company's share of the net fair value of the identifiable
assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in the
consolidated statements of operations.
Where a group entity transacts with an
associate of the group, profits and losses are eliminated to the extent of the group's interest in the relevant associate.
2.10 Equity Method Investment
An Equity Method Investment is an entity
over which the group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant
influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint
control over those policies. The results and assets and liabilities of Equity Method Investment are incorporated in these financial
statements using the equity method of accounting. Under the equity method, investments are carried in the consolidated balance
sheet at cost as adjusted for post-acquisition changes in the group's share of the net assets of the Equity Method Investment,
less any impairment in the value of individual investments. Losses of an Equity Method Investment in excess of the group's interest
in that Equity Method Investment (which includes any long-term interests that, in substance, form part of the Company's net investment
in the Equity Method Investment) are not recognised, unless the group has incurred legal or constructive obligations or made payments
on behalf of the Equity Method Investment.
Any excess of the cost of acquisition over
the Company's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the Equity Method
Investment recognized at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount
of the investment and is assessed for impairment as part of the investment. Any excess of the Company's share of the net fair value
of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised
immediately in the consolidated profit and loss statement.
Where a group entity transacts with an
Equity Method Investment of the group, profits and losses are eliminated to the extent of the group's interest in the relevant
associate.
2.11 Investments
The Company classifies its investments
in marketable equity and debt securities as "available-for-sale", "held to maturity" or "trading"
at the time of purchase in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("ASC 320"). Equity securities held
for trading as of September 30, 2012 totaled $1,163,161, December 31, 2011 totaled $584,406. The changes relates to an unrealized
gain of $860,100 and a loss of $189,324, for nine months ended September 30, 2012 and 2011, respectively.
Available-for-sale securities are carried
at fair value with unrealized gains and losses, net of related tax, if any, reported as a component of other comprehensive income
(loss) until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification
basis. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary will
result in an impairment, which is charged to earnings.
Investments that are not publicly traded
or have resale restrictions greater than one year are accounted for at cost. The Company's cost method investments include companies
involved in the broadband and entertainment industry. The Company uses available qualitative and quantitative information to evaluate
all cost method investment impairments at least annually. An impairment is booked when there is an other-than-temporary difference
between the carrying amount and fair value of the investment that would result in a loss.
2.12 Valuation of Long-Lived Assets
The Company accounts for long-lived assets
under ASC 360,"Accounting for the Impairment or Disposal of Long-lived Assets". Management assesses the recoverability
of its long-lived assets, which consist primarily of fixed assets and intangible assets with finite useful lives, whenever events
or changes in circumstance indicate that the carrying value may not be recoverable. The following factors, if present, may trigger
an impairment review: (i) significant underperformance relative to expected historical or projected future operating results; (ii)
significant negative industry or economic trends; (iii) significant decline in the Company's stock price for a sustained period;
and (iv) a change in the Company's market capitalization relative to net book value. If the recoverability of these assets is unlikely
because of the existence of one or more of the above-mentioned factors, an impairment analysis is performed using a projected discounted
cash flow method. Management must make assumptions regarding estimated future cash flows and other factors to determine the fair
value of these respective assets. If these estimates or related assumptions change in the future, the Company may be required to
record an impairment charge. Impairment charges would be included with costs and expenses in the Company's consolidated statements
of operations, and would result in reduced carrying amounts of the related assets on the Company's consolidated balance sheets.
See notes 2.7 and 2.8 for impairment.
2.13 Fair Value of Financial Instruments
ASC 820 establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
|
Level 1:
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
Level 2:
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
|
|
Level 3:
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
The following table sets forth the Company's
financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets
and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company's equity securities held for trading are classified
within the Level 1 of the fair value hierarchy and it is valued using quoted market prices reported on the active market on which
the securities are traded.
In February 2007, the FASB issued Statement
of Financial Accounting Standards No. 159 (ASC 825), The Fair Value Option for Financial Assets and Financial Liabilities. SFAS
No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and
losses on items for which the fair value option has been elected are reported in net income. SFAS No. 159 (ASC 825) is effective
for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Upon adoption of this Statement,
the Company did not elect SFAS No. 159 (ASC 825) option for existing financial assets and liabilities and therefore adoption of
SFAS No. 159 (ASC 825) did not have any impact on its Consolidated Financial Statements.
|
|
September 30, 2012
|
|
|
Note
|
|
|
December 31, 2011
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
Cash and Cash Equivalents
|
|
$
|
49,230
|
|
|
$
|
49,230
|
|
|
|
2.4
|
|
|
$
|
219,348
|
|
|
$
|
219,348
|
|
Equity Securities Held for Trading
|
|
|
1,163,161
|
|
|
|
1,163,161
|
|
|
|
3
|
|
|
|
584,406
|
|
|
|
584,406
|
|
Other Current Assets
|
|
|
190,409
|
|
|
|
190,409
|
|
|
|
4
|
|
|
|
166,782
|
|
|
|
166,782
|
|
Investments Cost
|
|
|
2,718,749
|
|
|
|
1,843,076
|
|
|
|
8
|
|
|
|
2,718,749
|
|
|
|
1,843,076
|
|
Advances from related parties
|
|
|
100,403
|
|
|
|
100,403
|
|
|
|
12
|
|
|
|
100,465
|
|
|
|
100,465
|
|
Capital Lease Payable
|
|
|
–
|
|
|
|
–
|
|
|
|
9
|
|
|
|
27,934
|
|
|
|
27,934
|
|
Convertible Term Loan
|
|
|
2,199,090
|
|
|
|
2,199,090
|
|
|
|
15
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
The investment held at cost located in
Cambodia represents 10 percent of the issued common stock of an untraded company; that investment is carried at its fair value
of $1,726,940 in the consolidated balance sheet. At year-end the total assets reported by the untraded company were $25,742,378,
common stockholders' equity was $17,269,400, revenues were $7,751,364 and net income (loss) was ($2,801,392). The investment held
at cost located in Singapore represents 8 percent of the issued common stock of an untraded company; the investment is carried
at its original cost of $116,136 in the consolidated balance sheet. In 2010, all investments were classified as long term with
$1,843,076 as its fair value.
2.14 Advances from Related Party
Advances from director and
related party of $100,465 and $100,465 at September 30, 2012 and December 31, 2011, respectively, are unsecured,
non-interest bearing and payable on demand.
2.15 Leases
The Company is the lessee of equipment
under a capital lease expiring in 2014. The assets and liabilities under capital leases are recorded at the lower of the present
value of the minimum lease payments or the fair value of the asset. The assets are amortized over the lower of their related lease
terms or their estimated productive lives. Amortization of assets under capital leases is included in depreciation expense for
the nine months ended September 30, 2012 and for the year ended December 31, 2011.
2.16 Foreign Currency Translation
Transactions in foreign currencies are
measured and recorded in the functional currency, U.S. dollars, using the Company's prevailing month exchange rate. The Company's
reporting currency is also in U.S. dollars. At the balance sheet date, recorded monetary balances that are denominated in a foreign
currency are adjusted to reflect the rate at the balance sheet date and the income statement accounts using the average exchange
rates throughout the period. Translation gains and losses are recorded in stockholders' equity as other Comprehensive income and
realized gains and losses from foreign currency transactions are reflected in operations.
2.17 Revenues
The Company's primary sources of revenue
are from the sales of advertising space on interactive websites owned by the Company; distribution and licensing of content to
our partners, broadband consulting services, and gaming revenue from our digit games.
The Company recognizes revenue in accordance
with Accounting Standard Codification (ASC) 605-10. Revenue is recognized only when the price is fixed or determinable, persuasive
evidence of an arrangement exists, the service or product is performed or delivered and collectability of the resulting receivable
is reasonably assured.
Website advertising revenue is recognized
on a cost per thousand impressions (CPM) or cost per click (CPC), and flat-fee basis. The Company earns CPM or CPC revenue from
the display of graphical advertisements. An impression is delivered when an advertisement appears in pages viewed by users. Revenue
from graphical advertisement impressions is recognized based on the actual impressions delivered in the period. Revenue from flat-fee
services is based on a customer's period of contractual service and is recognized on a straight-line basis over the term of the
contract. Proceeds from subscriptions are deferred and are included in revenue on a pro-rata basis over the term of the subscriptions.
The Company enters into contractual arrangements
with customers to license and distribute content; revenue is earned from content licenses, and content syndication. Agreements
with these customers are typically for multi-year periods. For each arrangement, revenue is recognized when both parties have signed
an agreement, the fees to be paid by the customer are fixed or determinable, collection of the fees is probable, the delivery of
the service has occurred, and no other significant obligations on the part of the Company remain. Licensing and content syndication
revenue is recognized when the license period begins, and the contents are available for exploitation by customer, pursuant to
the terms of the license agreement.
The Company enters into contractual arrangements
with customers on broadband consulting services and on-line turnkey solutions. Revenue is earned over the period in which the services
are rendered. For each arrangement, revenue is recognized when a written agreement between both parties exist, the fees to be paid
by the customer are fixed or determinable, collection of the fees is probable, and fulfillment of the obligations under the agreement
has occurred, Revenue from broadband consulting services and on-line turnkey solutions is recognized over the period in which the
services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual services provided
as a proportion of the total services to be performed. It is generally recognized from the date of acceptance and fulfillment of
obligations under the sale and purchase agreement.
2.18 Costs of Services
The cost of services pertaining to advertising
and sponsorship revenue and subscription and related services are cost of bandwidth charges, channel design and alteration, copyright
licensing, and hardware hosting and maintenance costs. The cost of services pertaining to E-commerce revenue is channel design
and alteration, and hardware hosting and maintenance costs. The cost of services pertaining to gaming is for managing and operating
the operations and gaming centers. All these costs are accounted for in the period its was incurred.
2.19 Income Taxes
Deferred income taxes are determined using
the liability method in accordance with ASC 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred income taxes are measured using enacted tax rates expected to apply to
taxable income in years in which such temporary differences are expected to be recovered or settled. The effect on deferred income
taxes of a change in tax rates is recognized in the statement of income of the period that includes the enactment date. In addition,
a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not
that some portion of the deferred tax asset will not be realized.
The Company files income tax returns in
the United States federal jurisdiction and certain states in the United States and certain other foreign jurisdictions. With a
few exceptions, the Company is no longer subject to U. S. federal, state or foreign income tax examination by tax authorities on
income tax returns filed before December 31, 2004. U. S. federal. State and foreign income returns filed for years after December
31, 2004 are considered open tax years as of the date of these consolidated financial statements. No income tax returns are currently
under examination by any tax authorities.
2.20 Earnings (Loss) Per Share
In February 1997, the Financial Accounting
Standards Board ASC 260 "Earnings Per Share" which requires the Company to present basic and diluted earnings per share,
for all periods presented. The computation of earnings per common share (basic and diluted) is based on the weighted average number
of common shares actually outstanding during the period. The Company has no common stock equivalents, which would dilute earnings
per share.
2.21 Fair Value of Financial Instruments
The carrying amounts for the Company's
cash, other current assets, accounts payable, advances from related parties accrued expenses and other liabilities approximate
their fair value. Investments that are not publicly traded or have resale restrictions greater than one year are accounted for
at cost. Trading securities are held at fair value based upon prices quoted on an exchange.
2.22 Advertising
The cost of advertising is expensed as incurred. For the nine
months ended September 30, 2012 and 2011, the Company incurred advertising expenses of $5,562 and $6,908 respectively.
2.23 Reclassifications
Certain amounts in the previous periods
presented have been reclassified to conform to the current year financial statement presentation.
3. EQUITY SECURITIES HELD FOR TRADING
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Quoted equity security, at fair value
|
|
$
|
1,163,161
|
|
|
$
|
584,406
|
|
|
|
|
|
|
|
|
|
|
The fair value of quoted security is based
on the quoted closing market price on the date of Sale and Purchase agreement. The investment in quoted equity security at fair
value includes a gain of $860,100 for the nine months ended September 30, 2012 and loss of $189,324 for the nine months ended September
30, 2011.
The company earned a gain of $311,890 after
disposal of partial investment shares for the nine months ended September 30, 2012.
The Company's equity securities held for trading investment
is denominated in Indonesian Ruppiah.
4. OTHER CURRENT
ASSETS
Other current assets consist of the following:
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Prepayments
|
|
$
|
33,699
|
|
|
$
|
25,342
|
|
Deposits
|
|
|
38,105
|
|
|
|
29,808
|
|
Other receivables
|
|
|
118,605
|
|
|
|
111,632
|
|
|
|
$
|
190,409
|
|
|
$
|
166,782
|
|
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Office equipment
|
|
$
|
927,130
|
|
|
$
|
925,910
|
|
Motor vehicle
|
|
|
11,000
|
|
|
|
91,190
|
|
Furniture, fixture and fittings
|
|
|
89,961
|
|
|
|
87,082
|
|
Pony set-top boxes
|
|
|
843,946
|
|
|
|
843,946
|
|
|
|
|
1,872,037
|
|
|
|
1,948,128
|
|
Accumulated depreciation
|
|
|
(1,865,290
|
)
|
|
|
(1,908,331
|
)
|
|
|
$
|
6,747
|
|
|
$
|
39,797
|
|
Depreciation expense was $37,148 and $158,641 for the nine months
ended September 30, 2012 and 2011 respectively.
6. FILM LIBRARY
Film library consist of the following:
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Acquired Film Library
|
|
$
|
23,686,731
|
|
|
$
|
23,686,731
|
|
Accumulated Amortization
|
|
|
(4,521,949
|
)
|
|
|
(4,521,949
|
)
|
|
|
$
|
19,164,782
|
|
|
$
|
19,164,782
|
|
Impairment of Film Library
|
|
|
(19,164,782
|
)
|
|
|
(19,164,782
|
)
|
Film Library
|
|
$
|
–
|
|
|
$
|
–
|
|
No amortization expense was incurred for
the nine months ended September 30, 2012 and 2011 respectively.
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
FINITE-LIVED INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
Gaming license
|
|
|
7,090,000
|
|
|
|
7,090,000
|
|
Product development expenditures
|
|
|
719,220
|
|
|
|
719,220
|
|
Software license
|
|
|
12,649
|
|
|
|
12,649
|
|
|
|
|
7,821,869
|
|
|
|
7,821,869
|
|
Accumulated amortization
|
|
|
(1,974,328
|
)
|
|
|
(1,974,328
|
)
|
|
|
|
5,847,541
|
|
|
|
5,847,541
|
|
Impairment loss
|
|
|
(5,847,541
|
)
|
|
|
(5,847,541
|
)
|
|
|
$
|
–
|
|
|
$
|
–
|
|
No amortization expense was incurred for
the nine months ended September 30,2012 and 2011, respectively. See Note 2.8 for impairment analysis.
8. INVESTMENTS - NET
Investments held at cost consist of the following:
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Current:
|
|
|
|
|
|
|
Unquoted securities
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
–
|
|
|
|
–
|
|
Non Current :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unquoted securities
|
|
|
116,136
|
|
|
|
116,136
|
|
|
|
|
|
|
|
|
|
|
Unquoted securities
|
|
|
1,726,940
|
|
|
|
1,726,940
|
|
|
|
$
|
1,843,076
|
|
|
$
|
1,843,076
|
|
The Company's $116,136 investment held
at cost relates to its investment in M2B Game World Pte Ltd. Management reviews this investment on a quarterly basis and has noted
no impairment for the nine months ended September 30, 2012 and 2011, respectively.
The Company's $1,726,940 investment operates
in Cambodia. This investment is subject to numerous risks, including:
|
·
|
difficulty enforcing agreements through the Cambodia's legal system;
|
|
·
|
general economic and political conditions in Cambodia; and
|
|
·
|
the Cambodian government may adopt regulations or take other actions
that could directly or indirectly harm the equity method investment's business and growth strategy.
|
The occurrence of any one of the above
risks could harm equity method investment's business and results of operations. Management reviews this investment on a quarterly
basis and has noted that no impairment loss was made for the nine months ended September 30, 2012 and 2011, respectively.
9. COMMITMENTS
Capital Leases
The Company is the lessee of equipment
under capital leases expiring in various years through 2014. The assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value of the asset. The assets are amortized over the lower
of their related lease terms or their estimated productive lives. Depreciation of assets under capital leases is included in depreciation
expense for 2011 and 2010. Interest rates on capitalized leases is fixed at 2.85%.
The following summarizes the Company's capital lease obligations:
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Future minimum lease payments
|
|
$
|
–
|
|
|
$
|
33,508
|
|
|
|
|
|
|
|
|
|
|
Less: amounts representing interest
|
|
|
–
|
|
|
|
(5,574
|
)
|
Present value of net minimum lease payments
|
|
|
–
|
|
|
|
27,934
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
–
|
|
|
|
(11,974
|
)
|
|
|
$
|
–
|
|
|
$
|
15,960
|
|
At September 30, 2012, total future minimum lease commitments
under such lease are nil.
Operating Leases
The Company leases facilities and equipment
under operating leases expiring through 2012. Total rental expense on operating leases for the nine months ended September 30 2012
and 2011 was $94,442 and $87,462, respectively. As of September 30, 2012, the future minimum lease payments are as follows:
For the Period Ended September 30,
|
|
Operating
|
|
|
|
|
|
|
2012
|
|
|
29,393
|
|
2013
|
|
|
117,570
|
|
2014
|
|
|
73,481
|
|
|
|
|
|
|
|
|
$
|
220,444
|
|
10. INCOME TAXES
The Company files separate tax returns
for Singapore and the United States of America.
The Company had available approximately
$8,200,000 of unused U.S. net operating loss carry-forwards at September 30, 2011, that may be applied against future taxable
income. These net operating loss carry-forwards expire for U.S. income tax purposes beginning in 2026. There is no assurance the
Company will realize the benefit of the net operating loss carry-forwards.
The Company requires a valuation allowance
to be recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. As of September
30, 2012 the Company maintained a valuation allowance for the U.S. deferred tax asset due to uncertainties as to the amount of
the taxable income from U.S. operations that will be realized.
The Company had available approximately
$9,900,000 of unused Singapore tax losses and capital allowance carry-forwards at September 30, 2012, that may be applied against
future Singapore taxable income indefinitely provided the company satisfies the shareholdings test for carry-forward of tax losses
and capital allowances.
The Company files income tax returns in
U.S. federal and various state jurisdictions. The Company is beyond the statute of limitations subjecting it to U.S. federal and
state income tax examinations by tax authorities for years before 2007 and 2006, respectively. The Company is not currently subject
to any income tax examinations by any tax authority. Should a tax examination be opened, management does not anticipate any tax
adjustments, if accepted, that would result in a material change to its financial position.
11. RELATED PARTY TRANSACTIONS
Related parties are entities with common
direct or indirect shareholders and/or directors. Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party in making financial and operating decisions.
Some of the company's transactions and
arrangements are with the related party and the effect of these on the basis determined between the party is reflected in these
financial statements. The balances are unsecured, interest-free and repayable on demand unless otherwise stated.
12. PURCHASE OF CBBN HOLDINGS LIMITED
The Company through its wholly owned subsidiary,
Tremax International Limited, entered into a sale and purchase agreement dated July 10, 2007 with Domaine Group Limited which has
not yet been consummated. Per the agreement the Company through its wholly owned subsidiary, Tremax International Limited would
transfer 5,333,333 shares of the Company valued at $3,733,333 in exchange for Domaine Group Limited transferring its 100% shares
in CBBN Holdings Limited, a company incorporated in the British Virgin Islands. The transaction has not been consummated and the
agreement had expired and was not extended. The Management of the Company had decided not to proceed with this agreement.
On January 22, 2009, the Company approved
the termination and recission of the Agreement where the seller failed to comply with the terms of the Agreement and did not deliver
to the Company or Purchaser the consideration for the issuance of the Amaru Shares. The Company further approved the cancellation
of the Amaru Shares.
13. IMPAIRMENT OF DIGIT GAMES LICENSE
The digit game license has been impaired
due to the digit game operations being suspended and all operations stopped by the Cambodia Government. The company, Allsports
managing the digit games in the Kingdom of Cambodia had also not released the profit to M2B Commerce, Ltd. from 2007 to present.
Management has been recording revenues based on information provided by Allsports's staff throughout the years and have verified
and adjusted them to actual as of year end. Due to lack of access as stated above, all revenues for the year ended 2008 will be
reversed since the Company's recognition criteria related to the associated revenues were not met.
14. LOAN AND BORROWINGS
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September 30, 2012
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December 31, 2011
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Current
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|
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|
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|
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Convertible loan
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$
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2,199,090
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2,500,000
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Less: Future interest charges
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–
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–
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$
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2,199,090
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2,500,000
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Term loans held by the Company at balance
sheet date are as follows:
(a) $2,500,000
represents a two year convertible loan drawn down by a subsidiary company. It bears interest at a fixed rate of 5.0%
per annum. The loan allows the borrower the option to convert the loan into shares of the subsidiary company at the issue
price of $0.942 per share at the end of the two year period.
The loan commenced in July 2008 and the due date of the
loan was July 7, 2010. The conversion period of the convertible loan was extended for an additional twelve months commencing
July 8, 2010 and was further extended to November 30, 2011. The loan was further granted extension to June 29, 2012 and
an extension of the due date is being negotiated. Subsequent to June 30, 2012, the Company has made repayment to the
convertible loan from the disposal of equity securities held for trading.
15. SUBSEQUENT EVENTS
Management evaluated all activity of the
Company and concluded that there were no other subsequent events to disclose.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
ALL FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN ARE DEEMED BY THE COMPANY TO BE COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING
STATEMENT CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED HEREIN. THESE FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS,
INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING
TO THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE
BUSINESS DECISIONS, AND THE TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF WHICH ARE DIFFICULT OR
IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE
AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN
WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL EXPENDITURE
PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES
INHERENT IN THE FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH STATEMENT SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
General
The Company is in the business of broadband
entertainment-on-demand, streaming via computers, television sets, and 3G (Third Generation) devices and the provision of broadband
services. Its business includes channel and program sponsorship (advertising and branding); online subscriptions, channel/portal
development (digital programming services); content aggregation and syndication, broadband consulting services, broadband hosting
and streaming services and E-commerce.
The Company was also in the business of
digit gaming (lottery). The Company has an 18 year license to conduct nationwide lottery in Cambodia. The Company through its subsidiary,
M2B Commerce Limited, signed an agreement with Allsports Limited, a British Virgin Islands company to operate and conduct digit
games in Cambodia and to manage the digit games in Cambodia. On March 25, 2009, the Company was notified that the digit games were
suspended by the Cambodia Government as part of the suspension of all lotteries in Cambodia. Although the Company is still a holder
of the license, it cannot use it for the gaming business until the suspension of the digit games is lifted. At this time, the suspension
of the digit games is expected to be permanent as the Government of Cambodia has closed the gaming business by the order of its
Ministry of Economy and Finance.
The following discussion should be read
in conjunction with selected financial data and the financial statements and notes to financial statements.
OVERVIEW
The business focus of the Company is Entertainment-on-Demand
and E-Commerce Channels on Broadband, and 3G (Third Generation) devices.
For the broadband, the Company delivers
both wire and wireless solutions, streaming via computers, TV sets, PDAs and 3G hand phones.
The Company's business model in the area
of broadband entertainment includes focuses on e-services, which would provide the Company with multiple streams of revenue. Such
revenues would be derived from advertising and branding (channel and program sponsorship); on-line subscriptions; channel/portal
development (digital programming services); content aggregation and syndication; broadband consulting services; broadband hosting
and streaming services; E-commerce commissions and on-line dealerships; and pay per view services.
In fiscal 2008, the business was reorganized
under the following entities to spearhead the expansion of the Company's business and focus on specific growth areas and territories.
M2B WORLD PTE. LTD.
M2B World Pte. Ltd. was incorporated on
April 3, 2003. This subsidiary used to oversee the management and operation of the Company as a whole and oversees the Asian business.
With effect from September 1, 2006, the Company's Asian business was overseen by another subsidiary, M2B World Asia Pacific Pte.
Ltd.
The Company took an investment on May 16,
2005 for a 9.1% equity position with a company called Activ Lifestyle Pte Ltd in Singapore to help facilitate Amaru Inc.'s diversification
into the health and wellness market. On September 27, 2005, the Company raised its investment in Activ Lifestyle Pte Ltd
to 12.6%. This was further increased to 17.4% as of December 31, 2006.
In December 2005, M2B World Pte. Ltd. sold
81% equity interests of its wholly-owned subsidiary, M2B Game World Pte. Ltd. to Auston International Group Ltd (Auston), a public
listed company in Singapore, in exchange for 27% equity interest in Auston. As of December 31, 2008, the Company disposed all of
its common shares in Auston. As of the date of this report, the Company holds no shares in Auston.
M2B WORLD, INC.
M2B World, Inc., a California corporation, was incorporated
on January 24, 2005. This subsidiary handles and oversees the Company's business in the U.S. The Company has not renewed its office
lease in West Hollywood in August 2011, and currently does not maintain an office space in the US.
On May 27, 2005, M2B World, Inc. entered
into an agreement with Indie Vision Films, Inc., a California corporation, to purchase 20% of the beneficial ownership of Indie
Vision Films, Inc. The investment will allow M2B World, Inc. to access the library of programs of Indie Vision Films, Inc. The
Company entered into an agreement on December 22, 2009 with Indie Vision Films, Inc. to convert its investment into content rights,
thereby giving up its 20% share of beneficial ownership in lieu of library rights that the Company could exploit commercially for
international use.
M2B WORLD ASIA PACIFIC PTE. LTD.
M2B World Asia Pacific Pte Ltd was incorporated
in the Republic of Singapore on August 1, 2006 for the purposes of handling all the business operations of the Company
in the Asia Pacific region. This company had taken over the Asian business operations as well as the assets and liabilities of
M2B World Pte. Ltd. with effect from September 1, 2006.
On January 3, 2007, M2B World Asia Pacific
Pte Ltd, issued 7,778,014 shares of common stock through a private placement at a price of $0.77 a share for a total amount of
$6,000,000. This had effectively reduced the Company's effective equity interest in M2B World Asia Pacific Pte. Ltd from 100% to
81.6%.
On July 8, 2008, M2B World Asia Pacific Pte Ltd signed a
two year convertible loan agreement with a third party to raise $2,500,000 in funding. The loan allows the borrower to
convert the loan into shares of the Company at the issue price of $0.942 per share at the end of the two year period. The
loan bears an interest rate of 5.0% per annum, and due date of the loan is July 7, 2010.. The note was obtained from a
company in which a board of director is the Joint Company Secretary of the lender. The conversion period of the convertible
loan was extended for an additional twelve months commencing July 8, 2010 and was further extended to November 30, 2011. The
loan was further granted extension to June 29, 2012 and an extension of the due date is being negotiated. Subsequent to June
30, 2012, the Company has made repayment to the convertible loan from the disposal of equity securities held for trading.
M2B COMMERCE LIMITED
M2B Commerce Limited, a company incorporated
in the British Virgin Islands on July 25, 2002, focuses on e-commerce and digit gaming, with a branch in Cambodia that oversees
the digit gaming operation in Cambodia.
The Company has an agreement with Allsports
Limited, a British Virgin Islands company to operate, administer, and manage the lottery digit game activities in Cambodia, as
an extension of the Company's entertainment operations. On March 25, 2009, the Company was notified that the digit game were suspended
by the Cambodia Government as part of the suspension of all lotteries in Cambodia. At this time, the Company believes that the
suspension of the digit game is permanent as the Government of Cambodia has closed the gaming business by the order of its Ministry
of Economy and Finance.
The company had entered into an investment
agreement on January 12, 2006, with Khoo Kim Leng, the beneficial owner of Dai Long Co., Ltd, which holds a valid casino license
and freehold land and intends to develop and operate an integrated resort in the Kingdom of Cambodia. The resort will feature a
hotel, guest house, shopping arcade, entertainment and amusement center and some gaming tables. As of December 31, 2006, the Company
had invested $2,402,613 in relation to this investment. The resort was completed and is in operation.
M2B ENTERTAINMENT, INC.
On April 19, 2010, M2B Entertainment, Inc.
was dissolved because the Company did not want to continue operations in Canada.
M2B AUSTRALIA PTY LTD
M2B Australia Pty Ltd was incorporated
on June 15, 2005. This subsidiary handles and oversees the Company's business in Australia. As of September 30, 2012, this subsidiary
is dormant.
M2B WORLD TRAVEL SINGAPORE PTE. LTD.
M2B World Travel Singapore Pte Ltd was
incorporated in the Republic of Singapore on March 7, 2006 to develop a global online travel platform which offers global e-travel
services.
On October 14, 2011, M2B World Travel Singapore
was dissolved because the Company did not want to continue its travel operations.
AMARU HOLDINGS LIMITED AND M2B WORLD HOLDINGS
LIMITED
Amaru Holdings Limited and M2B World Holdings
Limited are incorporated in the British Virgin Islands on February 21, 2005 and June 15, 2006, respectively. Amaru Holdings Limited
focuses on content syndication and distribution in areas other than Asia Pacific region. M2B World Holdings Limited focuses on
content syndication and distribution in Asia Pacific region and is a subsidiary of M2B World Asia Pacific Pte. Ltd.
TREMAX INTERNATIONAL LIMITED AND M2B WORLD
TRAVEL LIMITED
Tremax International Limited and M2B World
Travel Limited are both incorporated in the British Virgin Islands on June 8, 2006 and May 3, 2005 respectively. Both companies
are investment holdings companies.
On July 10, 2007, Tremax International
Limited entered into a sale and purchase agreement (the "Agreement") with Domaine Group Limited, a British Virgin Islands
corporation (the "Vendor"), for the acquisition of CBBN Holdings Limited ("CBBN Holdings"). CBBN Holdings is
a 80% beneficial owner of Cosmactive Broadband Networks Co. Ltd ("CBN"), which is a broadband service provider incorporated
in Taiwan. The purchase consideration is satisfied in full by the issuance of 5,333,333 of common stock of the Company.
On January 22, 2009, the Company approved
the termination and rescission of the Agreement, because the seller failed to comply with the terms of the Agreement and did not
deliver to the Company or Purchaser the consideration for the issuance of the Amaru Shares. The Company further approved the cancellation
of the Amaru Shares.
RESULTS OF OPERATIONS
REVENUE
Financial Statement
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·
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Revenue for the nine months ended September 30, 2012 was $6,643 compared
with $4,342 for the same period in 2011.
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|
·
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The Company's cash balance was $49,230 at September 30, 2012 compared
with $219,348 at December 31, 2011
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Revenue
Revenue from entertainment for the nine
months ended September 30, 2012 at $6,643 was higher than revenue of $4,342 for the nine months ended September 30, 2011 by $2,301
(53%). It was mainly due to increase in subscription received from new customers for the nine months ended September 30, 2012.
Cost of Services
Cost of services for the nine months ended
September 30, 2012 was $59,314 which decreased by $39,691 (40%) from $99,005 for the nine months ended September 30, 2011. It was
mainly due to decrease in cost spending on website movie production charges by $34,252 (62%) from $54,860 for the nine months ended
September 30, 2011 to $20,608 for the nine months ended September 30, 2012.
DISTRIBUTION EXPENSES
Distribution expenses for the nine months
ended September 30, 2012 at $39,024 were lower by $3,326 (8%) as compared to the amount of $42,450 incurred for the nine months
ended September 30, 2011.
The lower distribution expenses were attributed
to decrease spending on traveling and transportation expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
Administration expenses for the nine months ended September
30, 2012 at $616,789 were lowered by $199,028 (24 %) as compared to the amount of $814,817 incurred for the nine months ended
September 30, 2011.
The decrease in administrative expenses for the period ended
September 30, 2012 was attributed mainly to the decrease in:
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·
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Depreciation and amortization. Equipment depreciation had decreased
by $121,493 (77%), from $158,641 for the nine months ended September 30, 2012 to $37,148 for the same period ended September
30, 2012. The decrease was mainly due to most of the intangible assets and equipment being fully amortized and allowed for during
the year ended December 31, 2010.
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·
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Legal and professional expenses had decreased by $59,909 (39%), from
$153,122 for the nine months ended September 30, 2011 to $93,213 for the nine months ended September 30, 2012. The decrease was
mainly due as a result of costs reduction measures to reduce operating costs
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LOSS FROM OPERATIONS
The Company incurred a loss from operations
of $708,484 for the nine months ended September 30, 2012 as compared to the loss from operations of $952,830 for the nine months
ended September 30, 2011 due mainly due as a result of costs reduction measures to reduce operating costs.
NET INCOME (LOSS)
Net income for the nine months ended September
30, 2012, was $539,805 which increased by $1,789,993 (143%) from net loss of $1,250,188 for the nine months ended September 30,
2011. The significantly increase was partly due to a gain of $311,890 from disposal of investment, and fair value adjustment for
equities held for trading from a gain of $860,100 was earned for the nine months ended September 30, 2012.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at $49,230 at September
30, 2012 as compared to cash of $219,348 at December 31, 2011.
During the nine months ended September
30, 2012, the Company had not entered into any transactions using derivative financial instruments or derivative commodity instruments.
Accordingly the Company believes its exposure to market interest rate risk is not material.
The Company believes that it's operation
strategically based in Singapore, are the crossroads of communication and commerce, and are ideally placed to grow the media industry.
We expect that the broadband business segment would be able to generate sufficient cash to cover its operations by Year 2012.
Cash generated from operations meanwhile will not be able to cover the Company's intended growth and expansion. The Company
intends to raise additional funds to fund its business expansion until its revenue generation is self-sufficient to fund the business.
However, no assurances can be made that the Company will raise sufficient funds as planned.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The primary objective of our investment
activities is to preserve principal while concurrently maximizing the income we receive from our investments without significantly
increasing risk. Some of the securities that we may invest in may be subject to market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued
with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the current value of the principal
amount of our investment will decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents
and short-term investments in a variety of securities, including commercial paper, money market funds, high-grade corporate bonds,
government and non-government debt securities and certificates of deposit. In general, money market funds are not subject to market
risk because the interest paid on such funds fluctuates with the prevailing interest rate. The Company held $1,163,161 and $584,406
in marketable securities as of September 30, 2012 and December 31, 2011 respectively.
The Company does not believe that it faces
material market risk with respect to its cash and cash equivalents which totaled $49,230 and $219,348 at September 30, 2012 and
December 31, 2011, respectively.
The Company has no material long-term obligations
or hedging activities.
ABILITY TO EXPAND CUSTOMER BASE
The Company's future operating results
depend on our ability to expand our customer base for broadband services and e-commerce portals. An increase in total revenue depends
on our ability to increase the number of broadband and e-commerce portals, in the US, Europe and Asia. The degree of success of
this depends on
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our efforts to establish independent broadband sites in countries
where conditions are suitable.
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our ability to expand our offerings of content in entertainment and
education, to include more niche channels and offerings.
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·
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our ability to provide content beyond just personal computers but
to encompass television, wireless application devices and 3G hand phones.
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ABILITY TO ACQUIRE NEW MEDIA CONTENTS
The continued ability of the Company to
acquire rights to new media contents, at competitive rates, is crucial to grow and sustain the Company's business.
AVAILABILITY OF TECHNOLOGICALLY RELIABLE
NEW GENERATION OF BROADBAND DEVICES
The growth of demand for broadband services
is dependent on the wide availability of technologically reliable new generation of broadband devices, at affordable prices to
prospective customers of broadband services. The early and widespread availability and market adoption of new generation broadband
devices, will significantly impact demand for broadband services and the growth of the Company's business.
CAPITAL INVESTMENT IN BROADBAND INFRASTRUCTURE
BY GOVERNMENT AND TELCOS
The growth of demand for broadband services
is dependent on the capital investment in broadband infrastructure by governments and Telcos. A significant source of demand for
the Company's broadband services could be from homes and enterprises with access to high-speed broadband connections. The ability
of countries to invest in public broadband infrastructure to offer public accessibility is subject to countries' economic health.
The Company's prospects for business growth in Asia especially would be impacted by overall economic conditions in the territories
that we seek to expand into.
COMPETITION FROM BROADBAND CABLE AND TV
NETWORKS OPERATORS
As traditional TV networks and cable TV
operators provide alternate supply of entertainment and on-demand broadband services, they are in competition with the Company,
for market share. The Company, nevertheless, will continue to leverage on its advantage of ownership rights to its own portfolio
of media content and its ability to provide broadband services over both the cable and wireless networks, at competitive rates.
The Company's business is reliant on complex
information technology systems and networks. Any significant system or network disruption could have a material adverse impact
on our operations and operating results. The Company's nature of business is highly dependent on the efficient and uninterrupted
operation of complex information technology systems networks, may they, either be that of ours, or our Telco/ ISP partners.
All information technology systems are
potentially vulnerable to damage or interruption from a variety of sources, including but not limited to computer viruses, security
breach, energy blackouts, natural disasters and terrorism, war and telecommunication failures.
System or network disruptions may arise
if new systems or upgrades are defective or are not installed properly. The Company has implemented various measures to manage
our risks related to system and network disruptions, but a system failure or security breach could negatively impact our operations
and financial results.
LAW AND REGULATIONS GOVERNING INTERNET
Increased regulation of the Internet or
differing application of existing laws might slow the growth of the use of the Internet and online services, which could decrease
demand for our services. The added complexity of the law may lead to higher compliance costs resulting in higher costs of doing
business.
UNAUTHORIZED USE OF PROPRIETARY RIGHTS
Our copyrights, patents, trademarks, including
our rights to certain domain names are very important to M2B's brand and success. While we make every effort to protect and stop
unauthorized use of our proprietary rights, it may still be possible for third parties to obtain and use the intellectual property
without authorization. The validity, enforceability and scope of protection of intellectual property in Internet-related industries
remain uncertain and still evolving. Litigation may be necessary in future to enforce these intellectual property rights. This
will result in substantial costs and diversion of the Company's resources and could disrupt its business, as well as have a material
adverse effect on its business.
LAW AND REGULATIONS GOVERNING BUSINESS
As the Company continues to expand its
business internationally across different geographical locations there are risks inherent including:
1) Trade barriers and changes in trade
regulations
2) Local labor laws and regulations
3) Currency exchange rate fluctuations
4) Political, social or economic unrest
5) Potential adverse tax regulation
6) Changes in governmental regulations
OUTBREAK OF N1H1 VIRUS FLU PANDEMIC OR
SIMILAR PUBLIC HEALTH DEVELOPMENTS
Any future outbreak of the N1H1 flu pandemic
or similar adverse public health developments may have a material adverse effect on the Company's business operations, financial
condition and results of operations.
ITEM 4: CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
A system of disclosure controls and procedures
(as defined in Rule 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended [the "Exchange Act"])
are controls and other procedures that are designed to provide reasonable assurance that the information that the Company is required
to disclose in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including
the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives, and management
necessarily is required to use its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In
addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Moreover, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies
or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may
occur and not be detected.
At the time of our Quarterly Report on
Form 10-Q for the period ended September 30, 2012 as of the date hereof, our Chief Executive officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of September 30, 2012. Subsequent to that evaluation,
our management, including our Chief Executive Officer and Chief Financial Officer, have re-evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities
Exchange Act of 1943, as amended) as of the period covered by this report. Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements because of the identification
of the material weakness in our internal control over financial reporting of the film library from the misinterpretation of accounting
literature in accordance with United States Generally Accepted Accounting Principles ("GAAP"). Thus, the Company recognizes
that it has a material weakness in financial reporting due to a lack of staff with adequate knowledge of US GAAP. The Company will
correct this weakness by hiring a consultant who is knowledgeable in US GAAP and by providing continuing professional education
for the existing staff. It is the Company's intent to have a professional US GAAP consultant available on as needed basis in connection
with the preparation of the Company's financial reports. The Company intends to have its senior accounting staff attend classes
in US GAAP for a minimum of forty hours per calendar year. The Company believes that such corrective actions should eliminate this
material weakness.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible
for establishing and maintaining adequate internal control over the Company's financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United
States of America generally accepted accounting principles. A Company's internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that
receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the
Company and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or
disposition of the Company's assets that could have a material effect on our consolidated financial statements.
In connection with the preparation of this
Quarterly Report on Form 10Q, under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting
based on criteria established in the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"), as supplemented by the COSO publication Internal Control over Financial
Reporting - Guidance for Smaller Public Companies.
Our management, including the Chief Executive
Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial
reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company
have been detected.
MANAGEMENT'S REMEDIATION INITIATIVES
In addition to the re-evaluation discussed
above, management has, subsequent to March 31, 2011, implemented the following procedures to address the material weakness noted
above, including the following:
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Enhanced the access to accounting literature, research materials and
documents.
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Identified third party professionals with whom to consult regarding
complex accounting applications
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Looking to additional staff to supplement our current accounting professionals
with the requisite experience and training
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The elements of our remediation plan can
only be accomplished over time and we can offer no assurance that these initiatives will ultimately have the intended effects.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING
There have been no changes in the Company's
internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 1A: RISK FACTORS
An investment in the Company's common stock
involves a high degree of risk. One should carefully consider the following risk factors in evaluating an investment in the Company's
common stock. If any of the following risks actually occurs, the Company's business, financial condition, results of operations
or cash flow could be materially and adversely affected. In such case, the trading price of the Company's common stock could decline,
and one could lose all or part of one's investment. One should also refer to the other information set forth in this report, including
the Company's consolidated financial statements and the related notes.
THE COMPANY CONTINUES TO USE SIGNIFICANT
AMOUNTS OF CASH FOR ITS BUSINESS OPERATIONS, WHICH COULD RESULT IN US HAVING INSUFFICIENT CASH TO FUND THE COMPANY'S OPERATIONS
AND EXPENSES UNDER OUR CURRENT BUSINESS PLAN. THE COMPANY IS ALSO HOLDING A CONSIDERABLE AMOUNT OF QUOTED EQUITY SECURITIES THAT
IS AVAILABLE-FOR-SALE OR HELD FOR TRADING.
The Company's liquidity and capital resources
remain limited. There can be no assurance that the Company's liquidity or capital resource position would allow us to continue
to pursue its current business strategy. The Company's quoted equity securities held as assets are dependent on the market value.
Any fluctuations or downturn in the securities market could adversely affect the value of these equity securities held. As a result,
without achieving growth in its business along the lines it has projected, it would have to alter its business plan or further
augment its cash flow position through cost reduction measures, sales of assets, additional financings or a combination of these
actions. One or more of these actions would likely substantially diminish the value of its common stock.
THE MARKET MAY NOT BROADLY ACCEPT THE COMPANY'S
BROADBAND WEBSITES AND SERVICES, WHICH WOULD PREVENT THE COMPANY FROM OPERATING PROFITABLY.
The Company must be able to achieve broad
market acceptance for its Broadband websites and services, at a price that provides an acceptable rate of return relative to the
Company-wide costs in order to operate profitably. There is no assurance that the market will develop sufficiently to enable the
Company to operate its Broadband business profitably. Furthermore, there is no assurance that any of the Company's services will
become generally accepted, nor is there any assurance that enough paying users and advertisers will ultimately be obtained to enable
us to operate these business profitably.
BROADBAND USERS MAY FAIL TO ADOPT THE COMPANY'S
BROADBAND SERVICES.
The Company's Broadband services are targeted
to the growing market of Broadband users worldwide to deliver content and E-commerce in an efficient, economical manner over the
Broadband networks. The challenge is to make the Company's business attractive to consumers, and ultimately, profitable. To do
so has required, and will require, the Company to invest significant amounts of cash and other resources. There is no assurance
that enough paying users and advertisers will ultimately be obtained to enable the Company to operate the business profitably.
FAILURE TO SIGNIFICANTLY INCREASE THE COMPANY'S
USERS AND ADVERTISERS MAY RESULT IN FAILURE TO ACHIEVE CRITICAL MASS AND REVENUE TO BUILD A SUCCESSFUL BUSINESS.
The Company incurs significant up-front
costs in connection with the acquisition of content, and bandwidth and network charges. The plan is to obtain recurring revenues
in the form of subscription and advertising fees to use the Broadband services, either paid by the users or advertisers.
There is no assurance as to whether the
Company will be able to maintain, or whether and how quickly the Company will be able to increase its user base, or whether the
Company will be able to generate recurring subscription and advertising fees to such a level that would enable this line of business
to continue to operate profitably. If the Company is not successful in these endeavors, the Company could be required to revise
its business model, exit or reduce the scale of the business, or raise additional capital.
COMPETITION IN THE BROADBAND BUSINESS IS
EXPECTED TO INCREASE, WHICH COULD CAUSE THE BUSINESS TO FAIL.
The Company's Broadband services are targeted
to the end user market. As the Broadband penetration rates increase globally, an increasing number of well-funded competitors have
entered the market. Companies that compete with the Company's business include telecommunications, cable, content management and
network delivery companies.
The Company may face increased competition
as these competitors partner with others or develop new Broadband websites and service offerings to expand the functionality that
they can offer to their customers. These competitors may, over time, develop new technologies and acquire content that are perceived
as being more secure, effective or cost efficient than the Company. These competitors could successfully garner a significant share
of the market, to the exclusion of the Company. Furthermore, increased competition could result in pricing pressures, reduced margins,
or the failure of the business to achieve or maintain market acceptance, any one of which could harm the business.
THE INABILITY TO SUCCESSFULLY EXECUTE TIMELY
DEVELOPMENT AND INTRODUCTION OF NEW AND RELATED SERVICES AND TO IMPLEMENT TECHNOLOGICAL CHANGES COULD HARM THE BUSINESS.
The evolving nature of the Broadband business
requires the Company to continually develop and introduce new and related services and to improve the performance, features, and
reliability of the existing services, particularly in response to competitive offerings.
The Company has under development new features
and services for its businesses. The Company may also introduce new services. The success of new or enhanced features and services
depends on several factors - primarily market acceptance. The Company may not succeed in developing and marketing new or enhanced
features and services that respond to competitive and technological developments and changing customer needs. This could harm the
business.
CAPACITY LIMITS ON THE COMPANY'S TECHNOLOGY
AND NETWORK HARDWARE AND SOFTWARE MAY BE DIFFICULT TO PROJECT, AND THE COMPANY MAY NOT BE ABLE TO EXPAND AND/OR UPGRADE ITS SYSTEMS
TO MEET INCREASED USE, WHICH WOULD RESULT IN REDUCED REVENUES.
While the Company has ample through-put
capacity to handle its customers' requirements for the medium term, at some point it may be required to materially expand and/or
upgrade its technology and network hardware and software. The Company may not be able to accurately project the rate of increase
in usage of its network. In addition, it may not be able to expand and/or upgrade its systems and network hardware and software
capabilities in a timely manner to accommodate increased traffic on its network. If the Company does not appropriately expand and/or
upgrade our systems and network hardware and software in a timely fashion, it may lose customers and revenues.
INTERRUPTIONS TO THE DATA CENTERS AND BROADBAND
NETWORKS COULD DISRUPT BUSINESS, AND NEGATIVELY IMPACT CUSTOMER DEMAND FOR THE COMPANY.
The Company's business depends on the uninterrupted
operation at the data centers and the broadband networks run by the various service providers. The data centers may suffer for
loss, damage, or interruption caused by fire, power loss, telecommunications failure, or other events beyond the Company. Any damage
or failure that causes interruptions in the Company's operations could materially harm business, financial conditions, and results
of operations.
In addition, the Company's services depend
on the efficient operation of the Internet connections between customers and the data centers. The Company depends on Internet
service providers efficiently operating these connections. These providers have experienced periodic operational problems or outages
in the past. Any of these problems or outages could adversely affect customer satisfaction and customers could be reluctant to
use our Internet related services.
THE COMPANY MAY NOT BE ABLE TO ACQUIRE
NEW CONTENT, OR MAY HAVE TO DEFEND ITS RIGHTS IN INTELLECTUAL PROPERTY OF THE CONTENT THAT IS USED FOR ITS SERVICES WHICH COULD
BE DISRUPTIVE AND EXPENSIVE TO ITS BUSINESS.
The Company may not be able to acquire
new content, or may have to defend its intellectual property rights or defend against claims that it is infringing the rights of
others, where its content rights are concerned. Intellectual property litigation and controversies are disruptive and expensive.
Infringement claims could require us to develop non-infringing services or enter onto royalty or licensing arrangements. Royalty
or licensing arrangements, if required, may not be obtainable on terms acceptable to the Company. The business could be significantly
harmed if the Company is not able to develop or license new content. Furthermore, it is possible that others may license substantially
equivalent content, thus enabling them to effectively compete against us.
THE COMPANY DEPENDS ON KEY PERSONNEL.
The Company depends on the performance
of its senior management team. Its success depends on its ability to attract, retain, and motivate these individuals. There are
no binding agreements with any of its employees that prevent them from leaving the Company at any time. There is competition for
these people. The loss of the services of any of the key employees or failure to attract, retain, and motivate key employees could
harm the business.
THE COMPANY RELIES ON THIRD PARTIES.
If critical services and products that
the Company sources from third parties, such as content and network services were to no longer be made available to the Company
or at a considerably higher price than it currently pays for them, and suitable alternatives could not be found, the business could
be harmed.
THE COMPANY COULD BE AFFECTED BY GOVERNMENT REGULATION.
The list of countries to which our solutions
and services could not be exported could be revised in the future. Furthermore, some countries may in future impose restrictions
on streaming of broadband contents and related services. Failure to obtain the required governmental approvals would preclude the
sale or use of services in international markets and therefore, harm the Company's ability to grow sales through expansion into
international markets. While regulations in almost all countries in which our business currently operates generally permit the
broadband services, such regulations in future may not be as favorable and may impede our ability to develop business.
THE COMPANY COULD BE AFFECTED BY PIRACY
IN ASIA.
The Company is in the process of expanding
its services globally, and in particular is entering specific countries in Asia with customized country sites. These country sites
are designated to suit viewership patterns and styles in the countries they are launched in, and make use of the Company's content
and intellectual property rights to the content. The piracy of content is a significant problem in many Asian countries, and it
is not uncommon to see movies and television dramas appearing on illegal internet sites, and sold as pirated DVDs and VCDs. The
extent of this piracy of content in the specific countries that the Company is launching its sites will adversely affect to a certain
degree the amount of advertising and subscription revenues that the Company intends to earn.
THE COMPANY COULD BE AFFECTED BY ECONOMIC
DOWNTURNS
The global economy underwent a massive
downturn in 2009, which commenced in the second half of 2008. Many countries were faced with negative growth rates. Where the media
industry was concerned, major corporations reduced their advertising expenditures or even to cut back substantially all advertising
and promotional expenditures towards the later half of 2008. The Company is heavily reliant on advertising and syndication revenues.
Any future downturns in any one country that the Company operates its WOWtv service would significantly affect the Company's revenues.
OUR COMMON STOCK IS CONSIDERED A "PENNY
STOCK". THE APPLICATION OF THE "PENNY STOCK" RULES TO OUR COMMON STOCK COULD LIMIT THE TRADING AND LIQUIDITY OF
THE COMMON STOCK, ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND INCREASE THE TRANSACTION COSTS TO SELL THOSE SHARES.
Our common stock is a "low-priced"
security or "penny stock" under rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance
with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document
which describes the risks associated with such stocks, the broker-dealer's duties in selling the stock, the customer's rights and
remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving
the customer for low-priced stock transactions based on the customer's financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer,
and provide monthly account statements to the customer. The effect of these restrictions will likely decrease the willingness of
broker-dealers to make a market in our common stock, will decrease liquidity of our common stock and will increase transaction
costs for sales and purchases of our common stock as compared to other securities.
THE STOCK MARKET IN GENERAL HAS EXPERIENCED
VOLATILITY THAT OFTEN HAS BEEN UNRELATED TO THE OPERATING PERFORMANCE OF LISTED COMPANIES. THESE BROAD FLUCTUATIONS MAY BE THE
RESULT OF UNSCRUPULOUS PRACTICES THAT MAY ADVERSELY AFFECT THE PRICE OF OUR STOCK, REGARDLESS OF OUR OPERATING PERFORMANCE.
Shareholders should be aware that, according
to SEC Release No. 34-29093 dated April 17, 1991, the market for penny stocks has suffered in recent years from patterns of fraud
and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related
to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading
press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with
the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices
could increase the volatility of our share price.
WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE
FORESEEABLE FUTURE, AND WE MAY NEVER PAY DIVIDENDS. INVESTORS SEEKING CASH DIVIDENDS SHOULD NOT PURCHASE OUR COMMON STOCK.
We currently intend to retain any future
earnings to support the development of our business and do not anticipate paying cash dividends in the foreseeable future. Our
payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors,
including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements
that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by Nevada state
law. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only
way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.
FUTURE SALES OF OUR COMMON STOCK COULD
PUT DOWNWARD SELLING PRESSURE ON OUR COMMON STOCK, AND ADVERSELY AFFECT THE PER SHARE PRICE. THERE IS A RISK THAT THIS DOWNWARD
PRESSURE MAY MAKE IT IMPOSSIBLE FOR AN INVESTOR TO SELL SHARE OF COMMON STOCK AT ANY REASONABLE PRICE, IF AT ALL.
Future sales of substantial amounts of
our common stock in the public market or the perception that such sales could occur, could put downward selling pressure on our
common stock and adversely affect its market price.
THE OVER THE COUNTER BULLETIN BOARD IS
A QUOTATION SYSTEM, NOT AN ISSUER LISTING SERVICE, MARKET OR EXCHANGE. THEREFORE, BUYING AND SELLING STOCK ON THE OTC BULLETIN
BOARD IS NOT AS EFFICIENT AS BUYING AND SELLING STOCK THROUGH AN EXCHANGE. AS A RESULT, IT MAY BE DIFFICULT FOR YOU TO SELL YOUR
COMMON STOCK OR YOU MAY NOT BE ABLE TO SELL YOUR COMMON STOCK FOR AN OPTIMUM TRADING PRICE.
The Over the Counter Bulletin Board (the
"OTC BB") is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in
over-the-counter securities. Because trades and quotations on the OTC Bulletin Board involve a manual process, the market information
for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual
execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute
or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery
of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our common stock
at the optimum trading prices.
When fewer shares of a security are being
traded on the OTC Bulletin Board, volatility of prices may increase and price movement may outpace the ability to deliver accurate
quote information. Lower trading volumes in a security may result in a lower likelihood of an individual's orders being executed,
and current prices may differ significantly from the price one was quoted by the OTC Bulletin Board at the time of the order entry.
Orders for OTC Bulletin Board securities may be canceled or edited like orders for other securities. All requests to change or
cancel an order must be submitted to, received and processed by the OTC Bulletin Board. Due to the manual order processing involved
in handling OTC Bulletin Board trades, order processing and reporting may be delayed, and an individual may not be able to cancel
or edit his order. Consequently, one may not be able to sell shares of common stock at the optimum trading prices.
The dealer's spread (the difference between
the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTC Bulletin Board
if the common stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate "paper"
loss due to the price spread. Moreover, dealers trading on the OTC Bulletin Board may not have a bid price for securities bought
and sold through the OTC Bulletin Board. Due to the foregoing, demand for securities that are traded through the OTC Bulletin Board
may be decreased or eliminated.
WE GENERATED A NET INCOME OF $539,805 AND
LOSS OF $1,250,188 BEFORE TAXES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND SEPTEMBER 30, 2011, RESPECTIVELY. WE MAY BE UNABLE
TO CONTINUE AS A GOING CONCERN.
Our consolidated financial statements have
been prepared on a going concern basis which assumes that we will be able to realize our assets and discharge our liabilities in
the normal course of business for the foreseeable future. We generated a consolidated net income before taxes of $539,805 for the
nine months ended September 30, 2012 compared to a consolidated net loss before taxes of $1,250,188 during 2011. We realized a
negative cash flow from operating activities of $731,082 for the nine months ended September 30, 2012 compared to $800,518 for
the nine months ended September 30, 2011. For the nine months ended September 30, 2012, we had an accumulated deficit
of $40,325,665 and a working capital deficiency of $1,654,599 compared to an accumulated deficit of $40,757,707 and a working capital
deficiency of $2,445,659 for the year ended December 31, 2011. At at September 30, 2012, we had a stockholders' surplus of $195,261
compared to a stockholders' deficit of $578,709 as at December 31, 2011. Our ability to continue as a going-concern is in substantial
doubt as it is dependent on a number of factors including, but not limited to, the receipt of continued financial support from
our investors, our ability to raise equity or debt financing as we need it, and whether we will be able to use our securities to
meet certain of our liabilities as they become payable. The outcome of these matters is dependent on factors outside of our control
and cannot be predicted at this time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: MINE SAFETY DISCLOSURES
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS:
Exhibit 31.1
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
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|
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Exhibit 31.2
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CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
|
|
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Exhibit 32.1
|
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
|
|
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Exhibit 32.2
|
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
|
101.INS
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XBRL Instance Document
|
|
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101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
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101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
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101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
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101.LAB
|
XBRL Taxonomy Extension Labels Linkbase Document
|
|
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Amaru, Inc.
(Registrant)
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November 14, 2012
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By:
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/s/ Chua Leong Hin
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President, Chief Executive Officer and Chief Financial Officer
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Amaru (CE) (USOTC:AMRU)
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